Tata Consultancy Services Limited ($TCS)

Ladies and gentlemen, good day, and welcome to the TCS Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Nehal Shah from the Investor Relations team at TCS. Thank you, and over to you.

Thank you, operator. Good evening, and welcome, everyone. Thank you for joining us today to discuss TCS's financial results for the fourth quarter and full year FY 2026 that ended on March 31, 2026. This call is being webcast through our website, and an archive, including the transcript, will be available on the site for the duration of this quarter. The financial statements, quarterly fact sheet and press releases are also available on our website. Our leadership team is present on this call to discuss our results. We have with us today Mr. [indiscernible], Chief Executive Officer and Managing Director.

Hi, everyone. .

Ms. Aarthi Subramanian, Chief Operating Officer and Executive Director.

Good evening, everyone.

Mr. Samir Seksaria, Chief Financial Officer.

Hello, everyone. .

And Mr. Sudeep Kunnumal, Chief HR Officer.

Hello, everyone.

Our management team will give a brief overview of the company's performance, followed by a Q&A session. As you are aware, we don't provide any specific revenue or earnings guidance. And anything said on this call, which reflects our outlook for the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risk that the company faces. We have outlined this risk in the second slide of the quarterly fact sheet available on our website and e-mailed out to those who have subscribed on our mailing list. With that, I would like to turn the call over to Kriti.

Thank you, Nehil. Good day, everyone, and thank you for joining us today. I would like to open with 5 key messages for the quarter and the year. First, about Q4. We are very pleased to announce the third consecutive quarter of sequential growth. We delivered a strong 1.2% sequentially on a constant currency basis in the backdrop of intensifying geopolitical conflicts and macroeconomic uncertainty. This momentum was broad-based across major markets with North America growing 1.4% Q-on-Q, U.K. growing 2.4% and Europe growing 1% on a CC basis. Most of the industry segments also grew. Our order book performance was also very strong in Q4 with $12 billion in TCV, including 3 mega deals from Marks & Spencer, a leading telecom operator in the U.K. and a leading American health care and pharmacy. This underscores the strength of our 5-pillar strategy and our AI-led positioning across the leases. The second message -- key message is our [indiscernible] metrics. You will see from the fact sheet that every revenue band saw healthy additions this quarter after a gap of about 2 years. This speaks to the early signs of stability and growth returning to our midsize and large accounts. . The number of accounts where we generate more than $100 million annually, increased by 4% quarter-on-quarter, bringing a total to 66. We added 3 more clients in the $50 million band, bringing the total to 139 and 14 more clients in the $1 million-plus band, bringing the total to 1,397 from last quarter. The third message is on the announcement of salary increments. The announced salary increment for all our associates across all grades, all eligible associates across all grades effective first of April. Both the momentum we see in our AI services. This continues to accelerate very impressively, standing at $2.3 billion on an annualized basis. Lastly, the promise we see in our hyper wall business, which has made significant progress this quarter on its journey to build out 1 gigawatt of capacity. This includes winning customer commitments, land parcel finalizations and partnering agreements. We are actively engaging across the full ecosystem of hyperscaler semiconductor companies and model providers while TCS is an integration partner across infrastructure, engineering and AI-led services. Demand signals remain strong and are translating into structured engagements and commitments positioning TCS at the [indiscernible] of this build-out. As progress, this infrastructure layer is forming the foundation of TCS [indiscernible] spectrum play for infrastructure to Intelsat. Coming to our full year performance, even though our FY '26 revenue declined by 2.4% in constant currency. We delivered a strong $40.7 billion in TCV, including 5 mega hertz. We have made a strong focus on execution to deliver an operating margin of 25%. This is the highest operating margin achieved in the last 4 years. And as enterprises navigate increasing complexity across technology, operating models and business transformation, the role of trusted system integrators has become even more vital. Clients are looking for partners, who can bring deep technology excellence, strong enterprise and industry context and take end-to-end accountability with confidence on the outcome and ROA. In FY '26, this year was uniquely positioned to meet these expectations through sustained investments in AI-led engineering, the highly skilled and scalable talent base, differentiated solution and a strong partner ecosystem. This has translated into the major highlights I talked about earlier. Broad-based client additions across [indiscernible] band strong PCV and continued momentum in large deals. This plan showing greater willingness to come in to long-term multiyear multimillion dollar partnerships, reflecting the trust they place in TCS to deliver certainty on value at scale over extended transformation journeys. I will now invite Samir, our [indiscernible] to go different aspects of our performance during the quarter. I'll step in later to provide more color on the demand trends we are seeing in our key verticals and our outlook for the next year. Over to you, Samir.

Thank you, Sudeep. Good day to all. I'll start with the commentary on the [indiscernible] process and then proceed to the full year numbers. In the fourth quarter of financial year 2026, our revenue was INR 70,698 crores, which is a quarter-to-quarter growth of 0.4%. In dollar terms, revenue was INR 7.621 billion, a quarter-on-quarter growth of 1 point [indiscernible]. In constant currency, we had a sequential revenue growth of 1.2%. Our Q4 operating margin stood at 25.3%, a sequential increase of 10 basis points. During the quarter, we saw an improvement in realization, driven by continued focus on value-led delivery. Currency was also supportive during the quarter, providing a translation tailwind. These factors contributed to a benefit of around 40 basis points and 110 basis points, respectively. Consistent with the build partner acquired strategy, that we shared at our Analyst Day, we consciously reinvested these tailwinds back into strengthening our capabilities and growth engines. Under bid, we saw higher external consultancy costs of 40 basis points to capture the demand and to ensure delivery time lines and quality were protected while we continue to scale internal capabilities. In parallel, we have -- we made targeted interventions in critical talent, certifications, upskilling and creation of niche delivery parts. These investments are aimed at building a scalable future-ready AI delivery model that straddles the entire stack across our intra to intelligence strategy earlier on. Also, the ongoing impact of India wage score is included. Together, these 2 accounted to for an impact of 40 basis points. Under partner, we stepped up investments in ecosystem partnerships reflected in multiple announcements such as OpenAI, AMD and ServiceNow made during the quarter. These investments are focused on industrializing AI solutions are increasing cross-sell opportunities and improving speed and value for clients through deeper hyperscaler and platform collaborations. We also increased go-to-market activity with higher participation in client wins, showcases and industry forums. This is directly linked to expanding demand pipeline and improving conversions by demonstrating our AI and platform offerings. Together, these 2 accounted for a margin impact of 50 basis points. Finally, aligned to acquire, we incurred integration-related investments of approximately 10 basis points as we embedded acquired capabilities in our operating model. This included talent alignment platform integration, go-to-market enablement and delivery readiness, all aimed at accelerating synergy realization and scaling new offerings. Net margins for Q4 were 19.4% and our EPS grew 12.2% year-on-year. Our accounts receivables stood at INR 74 DSO in dollar terms for Q4, down 2 days sequentially. Our cash conversions this quarter continues to be strong, exceeding 100% of our net profits. Net cash from operations was $1.6 billion, which is a 106.7% of our net income. Investor funds at the end of the period stood at [ $15.3 ] billion. Coming to the full year FY '26, our revenue was INR 267,021 crores, which is a growth of 4.6 points on a year-on-year basis. In dollar terms, the reported revenue was $130.017 billion, a decline of 50 basis points. In constant currency terms, revenue declined 2.4% on an annual basis. For FY '26, our operating margin was 25%, an expansion of 70 basis points over the prior year and a 4-year high. In FY '26, our investments in talent and capability building led to a 200 basis point headwind. We also incurred an additional 100 basis points headwind on account of the investments from strengthening ecosystem partnerships and increasing our GPM pipeline. We successfully mitigated these by improving our business mix, productivity and realization by 100 basis points, rebalancing of pyramid helped by 80 basis points and support from currency also benefited margins by at 190 basis points. The operating margin for the year excludes a few one-off recognized during this year. These exceptional items relate to severance related expenses, legal provisions and the impact of changes in India. Net margins for FY '26 were 19.8%, and our EPS grew 8.8% year-on-year. Effective tax rate for the year was 24.6%. Going forward, we continue our investments to maximize growth. Our operational [indiscernible] will continue to focus on optimizing margins, robust cash conversion and strengthening the balance sheet. We remain firmly committed to returning substantial free cash flow [indiscernible] shareholders through a consistent and shareholder-friendly dividend policy, while prudently expanding investments under the build partner acquire framework to strengthen long-term growth. The Board has recommended a final dividend of INR 31 per share, taking the total dividend in the year to INR 110. I'll now invite Aarthi.

Thank you, Samir. Good evening to all of you. FY '26 was a pivotal year for enterprise AI adoption across industries. For the first time, since the advent of Gen AI in late 2022, the shift from experimentation to scaled AI deployment showed a marked improvement. AI became a core part of our every customer conversation and solutioning, creating a tailwind for enterprise adoption. In Q4, our annualized AI revenue surpassed $2.3 billion, driven by the accelerated deployment of AI solutions across industries. We experienced strong deal momentum across new services and enterprise transformation, digital engineering and cloud modernization. Our hyperbole business has made significant progress since our announcement in October 2024. Last quarter, I spoke about our two-pronged approach to engaging deeply with our customers on AI. One, to help them get ready with AI; and two, to partner with them to lead with AI. Let me share some more detailed updates on both of these areas, while our customers want to accelerate their adoption, their correct enterprise stack lacks the readiness for what it takes to scale. We are working with our customers to address this gap by upgrading their infrastructure to be scalable and secure, modernizing their core applications and setting up modern data foundation. Significant part of the technology spend is being invested in these areas. Let me share a few examples. PCS modernized mission-critical queue management systems with generative AI for a European airline, with reverse engineered complex legacy systems to reconstruct the core business logic embedded in these systems. This modernization was powered by Google's Gemini platform. The airline now has a scalable foundation to build new edge through operation solutions. For a car rental company in U.S., we executed a connect high-state legacy data warehouse migration moving over 20 terabytes of mission-critical data to a modern data platform. This program decommissioned their legacy systems, delivering an estimated $2.5 million savings but more importantly, it established a scalable data foundation for them to get ready for AI. To help our customers implement AI in their own context, we have created an AI acceleration playbook innovate with AI, build with AI and scale with AI. This year, we deployed this playbook across a significant number of our customers to solve high-value business problems in rapid deployment cycles of 12 to 16 weeks. For a leading utility company in the U.S., we conducted CSO-level AI immersion programs to identify challenges that can be best solved with AI. We also build their enterprise AI platform, which provides a secure scalable foundation to industrialize AI adoption. Physical AI deployment is also gaining traction in industrial sector. digital wins, computer vision, [indiscernible] based solutions are driving efficiency, throughput and safety. For our electronics manufacturer in the fabrication facility, we are integrating NVIDIA Omniverse driven digital twins with autonomous [indiscernible] based inspection systems. This physical AI solution is driving better construction accuracy and proactively identifying safety hazards, redefining every service line is central to our 5-pillar strategy. TCS has created a services services redesigned framework, which we call our human plus AI service autonomy model. This model integrates service line-specific industry-leading tools, which are integral to diving value in the customer context. This is resonating well with our customers as it provides well-defined framework for consistent deployment across the enterprise. We are taking AI-led redesigned services proactively to our existing customers and new prospects. In the last 2 years, AI model capabilities have evolved tremendously and rapidly. Yes, there is a gap in enterprises realizing the true potential of these technologies. One of the challenges our customers face, is that they have invested in these tools, but not yet reaping the expected productivity benefits. Our goal is to systematically help our customers address these gaps with our human plus AI service economy model. For a retailer in U.K., we deployed the AI engineering framework with agents through the software life cycle from translating unstructured requirements into structural specifications as well as executing spec-driven coding, testing and deployment. Our human [indiscernible] AI approach accelerated software delivery and reduce the deployment cycle time by about 40%. Business Process Services is becoming a fast adopter of agent I. We are working with multiple customers on the AI-led GBS transformation. For steel majors, TCS proactively deployed AI agent in procurement brake management process, resulting in order to invoice cycle reducing from 28 days to under 10 days. In FY '26, all NextGen services delivered strong growth across industries and end markets, backed by our continued investments in AI talent and innovative solutions. In FY '26, we invested significantly in strengthening our AI partnerships. This includes enterprise partners, hyperscalers, deep tech AI-native partners and domain-specific partners. In Q4, we post several strategic partnerships that have expanded our joint collaboration. This includes our partnership with ServiceNow, Google Cloud and with ABB. With OpenAI, we announced a partnership spanning multiple high-impact areas, empowering Tata Group employees with ChatGPT Enterprise, binning industry-specific agents, joint go-to-market initiatives and creating a state-of-the-art AI infrastructure. Finally, I would like to provide an update on TCS [indiscernible]. Our engagements with hyperscalers and frontier AI model companies have moved beyond early exploration into design alignment, security framework, site due diligence and commercial structuring. We see the demand converging around large anchor AI workloads in the 100 to 200-megawatt range per customer. HyperVault has aligned a deep partner ecosystem, including Tata Power Tata Projects, Tata Communications as well as GE, Honeywell, ABB, Siemens and many of our customers to cover EPC power, cooling control network and security and many such areas. Some of the key announcements we made this quarter, as I said earlier, is the open AI partnership to build 100-megawatt capacity with an option to [indiscernible] 1 gigawatt. In collaboration with AMD, we are combining their world last Helios rack-scale AI architecture with Tata Group synergies to create high-density AI capacity in India. We also find an MOU with ABB to strengthen joint collaboration across IT infrastructure applications, digital and industrial air initiatives as well as data centers and other emerging technologies. In summary, 26 saw a good momentum on AI and new services. As we move into FY '27, we will continue to accelerate deployment of our 5 pillar AI strategy. We are well positioned to support our customers with the deep knowledge of the enterprise context that we possess and our ability to integrate AI into the customer business and technology landscape to create customer value. Thank you. I would now like to hand it over to Sudeep.

Thank you, Aarthi. Hello again, everyone. At the outset, I would like to thank all our employees and their families station in West Asia for their utmost dedication and resilience during these tough times. All our employees and their families in the Middle East are safe, and we are in constant touch with them providing the necessary support. . At the end of March 2026, our global head count stood at 584,519 with associates from 149 nationalities of whom 35.2 percentage argument. We have announced annual increments to all eligible employees across grades effective April 1, with top performance getting double-digit increase. We are focused on building a future-ready organization by strategically hiring both fresh graduates and experienced professionals. Our recruitment efforts have been concentrated on individual with expertise in AI, data, enterprise solutions, software engineering, cloud, cybersecurity and digital engineering. In FY '26, we also hired over 750 employees with deep advisory and consulting expertise. We stepped up our investments in talent development initiatives as well. In FY '26, a total of 69 million learning hours has been completed and 5.2 million competencies have been attained by our associates. Over 470,000 associates now process advanced proficiencies in AI and machine learning. TCS demonstrates its commitment to innovation by being its own customer zero, adopting and refining technologies across internal HR practices before deploying them externally. Within the human resources functions, we are embracing AI as follows: Nearly half of the internal resource allocations, of course, through our internal talent marketplace, which uses AI-driven recommendations to match demand and supply. Our Gen AI powered learning coach platform has helped over 100,000 TCS employees improve their proficiencies through targeted role-specific learning. Our Gen AI enabled interior accelerates hiring with technical assessments with our AI recruitment platform enhances post offer engagement to health and were very specific queries. The AI system provides instant multilingual contextual HR policy support, improving employee experience. We have further strengthened our position as employer of choice globally and are pleased to have been recognized as an enterprise-wide top employer for the 11th consecutive year by the top employees Institute, reflecting our commitment to foster an inclusive and engaging workplace where our people can thrive and grow. I would now like to invite you back [indiscernible].

Thank you, Sudeep. Scaling interface AI adoption requires organization [indiscernible] technology debt, data readiness and operating model complexity. AI will enable clients to rapidly move from end customer feedback to demand identification to code. With every tech cycle, trying have realized far greater value and TCS has scaled its business. With the TCS aspires to be the world's largest AI-led tech services company. This aspiration is powered by capitalizing on AI-led renewals, vendor consolidation and cost optimization deals, resulting in market share gains. Using new age services and adjacencies that enable interfaces to get ready for a becoming a AI FullStack, becoming a FullStack AI services player that is infrastructure. Despite this backdrop, PFSA clients continued to prioritize core and legacy modernization. Data estate transformation, cloud migration and scale Gen AI deployment, productivity led operating model transformation vendor consolidation. Spending patterns increasingly shifted from experimentation to industrialize business-driven transformation, with the strong emphasis on cost discipline, regulated resilience and measurable outcomes. Our consumer business group saw another quarter of good growth, supported by market share gains and emerging purchase of technology conviction, resilience and guarded optimism. Retail globally and TTS in U.K. and EMEA led the growth, while CPG and TTS North America segments declined. Enterprises continue to tightly align spending to initiate is delivering near-term efficiency, cost control and operational resins with growing emphasis on vendor consolidation, technology simplification, legacy modernization, Select to AI, GenAI [indiscernible] had 2 mega deal wins this quarter, which helped propel its TCV to an all-time high. One of the 2 mega deals was a renewal and expansion of our services to [indiscernible] Marks & Spencer, a customer of TCS for well over a decade. The deal is a testimony to a deep trust and strong partnership between the 2 organizations. The other mega deal is a leading American health care and pharmacy retailer, which are the long-standing and strategic partnership of TCS that we are -- that we are very proud have retained this particular partnership as well. Clients are appreciating [indiscernible] track record of successfully delivering transformation programs more than ever. An excellent example is what we are doing for this former retailer. For them, TCs has partnered with to modernize its mission-critical sales for [indiscernible]. Operating at a massive scale, possessing over 5 million prescriptions daily the platform underpins core pharmacy operations, including claims validation, accumulation and track tracking of patients out-of-pocket expenses, ordering replenishment reporting, as prescription volumes continue to raise the legacy architectures began to limit performance, real-time visibility and scalability, creating operational bottlenecks across the ecosystem. Leveraging deep domain expertise and contextual knowledge, TCS [indiscernible] imaging process flows and led the comprehensive cloud-native rearchitecture of the platform. The transformation introduced even driven processing, complex multisystem integration and world-class enterprise security to ensure resilience and complex. This has enabled near real-time processing compressing claims cycles from 48 hours to just 12 hours, data-driven decisioning, leveraging a and auto scaling to support growing prescription volumes and rapid onboarding of new [indiscernible] positioning the client for sustained future growth. Now let me talk about our Life Sciences and Healthcare group, we saw a marginal growth this quarter. Health care payers are managing raising costs and growing friction with providers due to preauthorization and claims issues. Key priorities or include affordability, transparency simplicity and better patient experience. Organizations are focusing on data marketplaces, cyber resilience and [indiscernible] to boost productivity where regulatory changes add to compliance costs and administrative burdens prompting selective modernization focus on efficiency. The pharmaceutical industry is streamlining pipelines and adopting a to tackle growth and pricing pressures. Companies in the Americas and U.K. and EU are focusing on efficiency through vendor consolidation, fixed modernization and enterprise-wide transformation. The manufacturing vertical also saw good growth this quarter despite the macro uncertainties and the impact to the global supply chains. [indiscernible] demand across manufacturing remain cautious in Q4, shared by macroeconomic uncertainty, tariff volatility, recalibration of EV demand and continued restraint in capital expenditure across automotive, industrial and chemicals. Customers priorities near-term cost optimization, operational resilience with sustained focus on year led productivity, including predictive maintenance and quality automation, alongside ERP and cloud modernization to streamline operations and improve reliability. The Technology and Software segment saw reasonable growth this quarter given the environment. Time demand in Q4 remained disciplined under a challenging macro environment, shared by heightened geopolitical tensions, tariff later uncertainty and increasingly stringent manufacturing and data sovereignty requirements. Customers continued to prioritize cost rationalization to fund a strategic pivot towards AI-led transformation which spend focused on vendor consolidation, GCC expansion and structural efficiency and the resulting savings we invested into scaling across core operations and product portfolios. Incremental investments were also directed towards digital sovereignty and supply change lanes. CMA saw a modest decline this quarter, but we are witnessing promising signs of a rebound in IT spending [indiscernible]. Telecommunication companies are advancing their journeys to expand into adjacent businesses while simultaneously enhancing the efficiency of their core operations. This strategic shift is paving the way for growth and innovation. Momentum remains strong in securing large deals within the telecommunications sector. We have signed our first mega deal in CMI. Just in this quarter, first mega deal in CMI in this quarter, a significant expansion of its long-standing partnership with a leading U.K.-based telecom operator. This 5-year contract will see TCS leads the operator's comprehensive IT transformation, IT transformation journey for its consumer business, leveraging advanced GA, cloud and digital engineering capabilities. The expansion built on the strength of years of trusted partnership and demonstrated delivery. We'll see TCS take end-to-end responsibility for running the entire IT system of the operator's consumer base. and become a strategic technology partner, consolidating the entire landscape previously spread across multiple service providers. [indiscernible] demonstrated robust growth this quarter. Within the Energy & Resources segment performed well, led by supply chain modernization initiatives gathering momentum in the near term. However, the utility segment is experiencing us and significant cost optimization opportunities are opening up. In summary, even in a year marked by global uncertainty, we have demonstrated resilience discipline and the ability to lead through complexity. Our performance in FY '26 reflects, not just strong execution, but enduring trust from clients who are committing to longer-term partnerships and some associates who continue to drive transformation and scale with robust order book. expanding client relationships across revenue brands, accelerating momentum and foundational investments like hyper wall. We are building the next phase of TCS with conviction. As enterprises increasingly seek partners who can deliver certainty, accountability and outcomes end to end, TCS stands exceptionally well positioned. Combining technology excellence, deep contextual [indiscernible] and scale to help our clients navigate change and create sustainable value. We enter the new year with confidence, clarity of purpose and an unwavering focus on delivering growth with resilience and trust. With this, I will now open the line for questions.

[Operator Instructions] We'll take a first question from the line of Sudheer Guntupalli from Kotak Mahindra AMC.

My first question, is there any perceivable change in quantity or quality of client inquiries or even bookings around agent implementation, post first week of Feb, when [indiscernible] announced a string of NBK launches.

Okay. I won't say there is definitely clients are curious to know about the capabilities and expanding -- I'm sorry, expanding capabilities of all the models. And they also want to leverage the models or to the achieved both productivity as well as business how you changed the imagination. But is it because of post-entropic, I won't say that. There's been a general -- as the model capability improves, there will be more and more interest in seeing how they can leverage.

Client interest and demand actually increases with new capabilities coming out of the model providers.

Fair enough. The second question, many of these [indiscernible] module companies, they are just announcing a new project or agent, which may be in their development pipeline but not yet launched. The latest example being cloud [indiscernible], is this in any way leading to clients sort of deferring their existing IT trends to maybe wait and watch once the product actually hit the shelf, maybe a few months or years down the line. .

We are not seeing that, Sudeep. Like the -- it's been our client -- as I said, our clients are quite interested in liberating. They know this will be constantly evolving. And there is no major benefit in waiting for the next best model to come. So clients are willing to invest now and they know and we have been helping them with our overall philosophy of our -- the the architecture is built for change. So we're helping them in building that architecture so that they can exploit and leverage the models as they come.

Last question from my side. So how do you think of FY '25 in growth, given the exit run rate and where our order booking as and also expectations around some AI-led deflation?

So as [indiscernible] mentioned, like we have a good order book getting into FY '27. We held strong 3 mega deals booked in this quarter. And as you also described most of the industry verticals, we see a positive momentum. And our new age services are also gaining traction. So overall, we are getting into next year with a lot of positivity and confidence.

We'll take our next question from the line of Kumar Rakesh from BNP Paribas.

My first question was around what you were just talking about that getting into FY '27, we are exiting at a healthy growth. We are also exiting with a bulk of multiple Megalines and across verticals as well, it seems like demand has started improving at least growth for TCS has started improving. So would you call out and say that we should start getting back to 3%, 4% sort of growth in the international business where we used to be or better than that, or the recovery is going to be far more gradual this year?

Kumar, I don't want to put a number. But I would say that, again, as a selling [indiscernible], we are quite positive about FY '27, quite positive about the international growth.

Got it. And my second question was around margins. So SG&A in the second half has been elevated. So is this the new normal we should now start looking at? Or it should normalize back to below 15% where it used to be?

So as you know, we have been investing on the build partner acquired strategy, and incremental investments like on partnerships, on recruitment and training on the new businesses are all reflecting on the [ SEMA ] side. So some part of it will see an elevated both on the absolute amount as well as on -- as a percentage of revenue. .

Got it. And just for a clarification, our restructuring is done or there's more costs associated to that, that has to come through?

So if you look at Q4, we have not called out any one-offs, so it is business as usual. Yes.

But there is a restructuring charge, which you have booked in the quarter, right?

See, it is not a fault of any one-off.

So the one-off we had called off was only in Q3 of about INR 1,300 -- the combined for the year is INR 1,300 crores. No one-offs [indiscernible]

But Kumar, just to get the clarity as a big specific, okay? So the program that we started, we have completed that program. The program towards the section has been completed.

We'll take our next question from the line of Yogesh Aggarwal from HSBC Securities.

Could I just firstly on the next few quarters, do -- can we expect the similar type of seasonality going forward? Or because the reason I'm asking is there's not been much head count addition. So the typical seasonality of better first half, does that still work going forward?

See, I know what you mean by nationality. Like, see, essentially, we are looking it's more likely to be a regular Q1, regular Q2 that we are used to seeing is the way we are looking at as we stand now, Yogesh.

No. [indiscernible], I was asking, sir, usually, the first and the second quarter are stronger than the fourth one...

So that is what I am saying. We are also expecting -- we have -- our planning assumptions along those lines only.

Okay. Great. And secondly, just going back to this AI stuff. So Usually, in the past, you had all these historically relationships and partnerships with software companies like SAP and all these diamond platinum ratings. Can you talk a little bit about what are these partnerships with the AI model, especially in topic, what is the level of tiering with them? And does it really matter anymore? .

No. Yogesh, I think with all the model companies, we are building strategic partnerships. We have announced with open AI. We are already working significantly with Anthropic and will be announcing strategic partnerships with them in the near future. We are very closely working with [indiscernible]. So with all model companies, it's extremely important for us to build a strategic partnership. But I would say that we are all trying to shape these partnerships differently than the traditional GTM partnerships over the past. So we want to make them 360-degree partnerships, not just -- so one is because of our investment in hyper wall. We have a very unique opportunity where we can become our customers. So you saw the announcement that we made with OpenAI, where there is a committed tomatoes and the opportunity to grow that to 1 gigawatt. So similar conversations are opportunities with these model companies and hyperscalers. So that's 1 new pillar of collaboration, right, of strategic collaboration. Apart from that, using their products, right, Chat Enterprise we made in our announcement. So using atropic [indiscernible]. So that second pillar of collaboration. Third is industry-specific solutions with them. The fourth one is, again, GTM, very specific GTM motions, which is very sort of what you take away from how we do strategic partnerships for the past. So that definitely is a pillar. So this, again, like I said, we are trying to shape these partnerships differently, more deep, more strategic and value for both.

We take our next question from the line of Nitin Padmanabhan from Investec.

[indiscernible], initially, you mentioned some caution in BFSI during the quarter. I just wanted your thoughts on how clients are actually thinking about spending going forward considering the macro. Do you think this ends up like last year where you had the liberation day. And we thought we were getting -- probably getting into good start, but then you had all these headwinds. So in the context of what you see today, what are the conversations with clients will be great to have your perspective there maybe across a few key sectors at least?

See what at this time, if you look at our direct impact from the geopolitical situation so far has been restrict to Middle East and to some extent to into our travel and transportation industry. and we have not seen major impact in other industries so far. But Nitin, as you would know, like if things go continue and if it leads results in further sufficient disruption or any other secondary issues, it may have an impact. But at this time, I think the impact will be limited to our travel and transportation and probably the work we do in Middle East.

And we have not been hearing any other specific concerns from our clients in other industries or other geographies.

So the caution that you mentioned was very geo specific. It's not a broad-based question. .

And also, yes, that's correct yes.

Sure. Perfect. That's very helpful. The second is on -- from a margin perspective, how should we think about margins going forward? Because on 1 hand, you do have the currency giving you [indiscernible], and on the other side, you have to invest on capabilities and multiple other things. So just how should we broadly think from a margin perspective as we get into the next year?

Listen, we are exiting FY '26 at a 4-year high on annual margins 25%, and we see continued positive momentum. Our focus will be to ensure growth with profitability. So we'll not be shying away from making the right investments for enduring strategic growth. So if you look at stepping into FY '27, the immediate headwinds would be the annual increments which we have talked about. And also, as you rightly mentioned, we'll continue our focus on the build, acquire and partner framework and investments around that would be part of it. While some of those, we would want to mitigate to better our operational rigor in terms of the usual levers, which we have called out, and also look at optimization on some of the nonemployee expenses. And as you rightly called out, the rupee depreciation does help not guaranteed always. Overall, we want to balance it and keep within a type of age. We'd like to move towards 26%, but on a longer-term basis.

Perfect. That's helpful. Just 1 last from my end. Overall, coming out of last year and getting into the next -- do you believe that all known client-specific headwinds are behind and we should see better revenue accretion from deal wins and from a deal win momentum perspective as well. But do you think that, that is on an accreting trajectory?

By and large, most of the headwinds, we know probably are behind us, excepting queue that may come up or that we have already accounted for. But at this time like we are not expecting, like, of course, nobody can predict what will happen down the end. But I think most of the issues are behind us. .

We'll take the next question from the line of Vibhor Singhal from Nama Equities.

Just two questions from my side. One is [indiscernible] mentioned our AI revenue to be around $2.3 billion annualized. So that's basically almost 6.5% to 7% of our total revenue. So I just wanted to basically understand if I were to draw a parallel to the last digital cycle, there also, I think after a certain stage, we had started quantifying our digital revenue. And the way we saw that cycle play out is that initially there was cannibalization of revenue. And at the same time, we had growth from the digital revenues. And gradually, the growth from resale revenue was able to more than compensate the cannibalization of revenue. Are we seeing a similar trend this time do we expect a similar cycle to follow this time also that there are productivity cases that we are passing on to the clients because of which we are losing our revenue. On the other hand, you have $2.3 billion going to grow much strongly. And at some point of time, in the coming quarters, we probably region inflection point. Is that a good way to look at the January cycle, how similar or different would it be from the life cycle. That would be helpful. .

See, like broad structurally, what you are seeing is correct. I don't know whether it will be the same time period in which the whole thing will change. But otherwise, structurally, what you are saying is correct. You would expect the revenues to increase we would expect some of the traditional revenues to slowly taper down and revenue to compensate for the reduction in the in in other parts of other service lines, but the time lines probably can vary. I'm not able to predict the time lines on how all these different cycles will move. Aarthi, do you want to add?

Yes. Thank you, Vibhor, if I may just add to that. When you look at here to compare to the digital transformation that you alluded to, where is the transformational budget, right? Largely mugged as AI is going, right? There are 3 buckets. One is [indiscernible] transformation. There is still a lot to be done on digital, which is still to be done in companies, whether it's cloud adoption, migrating to cloud, data modernization, cybersecurity, enterprise systems upgrades, whether it's S/4 HANA, Salesforce. So all those are ongoing, right? So that's a transformational bucket. The second one, which is very purely AI-led is the modernization opportunities that we see. Tech debt reduction was always a priority, but that was always postponed by enterprises because it would take long, it would cost a lot. But I think AI is playing in there. and helping customers clear take debt better faster. So that's because a long way to go, but that's the second sector of opportunity. The third is the pure-play AI transformation, what Kriti earlier alluded to as industry value chain transformation where you're really doing AI engagements that create direct business impact.

Got it. Got it. That was very helpful, Aarthi. [indiscernible] me one more question from my side. It's probably more at a strategy level than you and basically, the team can answer on that. If you look FY '26, we ended the year at minus 2.5% CC Y-on-Y decline. If I compare our revenue growth this year with our closest competitor, we would probably be -- the difference would be almost 5 to 6 page points, it's probably the widest that we have ever been, that the gap has ever been. But on the other side, our margins are very, very strong, probably 1 of the highest margins that we have -- we, of course, remain at the highest margin level in the industry. and we're very strong in margins, while the entire industry is facing a lot of margin pressure. What is the company level strategy at this point of time? Like we want to continue to focus on the profitable growth part, have we ever got that should we be ready to compromise a bit of margins to maybe boost growth? What is the direction in which the Board and management is thinking in terms of balance between a better growth and [indiscernible]

Vibhor, I get the question. One, fundamentally, we believe, okay, our focus on margin is not affecting our revenue growth. Of course, at the same time, in fact, we believe we have good margin we have gives us greater flexibility to approach new deals and be more competitive in we are gaining market share. And we have been probably been able to close the time and again, it's not that we are not we don't lose deals on pricing. We work with customers. We ensure that we give the best solution. And we've been able to win deals. And so this is an overall thesis. We believe margin and growth are not conflicting with 1 another. We should be able to do well on both. And we continue to stay close to our customers. We continue to invest like the margin we have helps us to invest like what you saw in the last 2 acquisitions and investment on per they are all possible because we are able to generate margin and it gives us the ability to invest for growth. So we don't believe these are at longer hedges on [indiscernible].

Our next question is from the line of Ashwin Mehta from Ambit Capital. .

So one question from Samir. What is the impact of wage hikes that we see in terms of our margins next quarter? - and secondly, any color in terms of this deal flow that we've announced, which is pretty strong. What is the renewal share in terms of that given that there are quite a few deals in the press release where we have extended our relationship with these clients?

So on the wage increments, you should expect a similar thing on what we have seen in the past annual increment cycle, which has been in the range of 150 to 200 basis points. .

On, the Ashiwin, in terms of color on the characteristics of the deals or TCV, I would say like about mostly like 50-50 or 45, 55 kind of in terms of between renewals and new programs. So I think this quarter, maybe over 50% to 55% could be on renewals around 40 to 45 -- around 45%, would be on new programs. And this varies typically in a smaller band between 40% to 60% band, it varies one way or other.

And just one follow-up. In terms of deals, are you seeing early renewals wherein vendors like yourself as well are going in for early renewals or the deals are largely getting renew on time.

By and large, on time, but when we also see opportunity to go back to our customer. And the viesure that there's really a renewal can be done with the criteria infusion, greater product duty delivered. And at the same time, the expansion in scope. We do go to the customers and we offer to renew really if they are also whenever the we see value and whenever it's mutually beneficial.

Our next question is from the line of Rishi Jhunjhunwala from IIFL.

My questions have been answered, but maybe just a quick clarification. Just if we think about your thought process around [indiscernible], right? So we've deferred it twice in the last 5, 6 years since Covid. This time, we have reinstated it after when we announced it in September back to the April cycle. I just wanted to understand what's the thought process behind that, given that the overall demand environment the supply side environment and the macro uncertainties largely remain there and haven't seemed to be changing materially over the past 6 to 9 months? .

Rishi, it's a reflection as a [indiscernible] is, we want to ensure that we properly reward all the associates who have been working tirelessly for us. And as you know that while in September, we are able to give increments to 80% of associates, the senior executive associate, [indiscernible], we did not give at that time. So we wanted to ensure that when we restart our increment cycle, we reset it and start for everyone. But it's also a reflection of the fact that we believe that we have enough deal momentum and demand on our side, so that we'll be able to handle the increased wage cost, wage bill because of increases.

Got it. And very quickly, while you've started giving annualized AI revenues, would it be possible to throw some color on AI deals as well, just to get some sense of how those are progressing?

So Rishi, if we look at it, AI deals are I would say of 2 kinds. One is many of the mega deals that Kriti spoke about today. So they have a significant amount of AI embedded into them. in terms of how we deliver the service also in terms of how we transform clients' business, right? But apart from this, when we are saying AI revenue, we are only calling out the specific AI for business transformation revenue, which we said has exceeded $2.3 billion on an annual -- $1 billion on an annualized basis. So -- and when you look at the nature of programs, it's across industries, across markets. And we see that a lot of these programs are rapid build you add a 16-week delivery type of solutions. These are high-impact problems that the customers are choosing that we can deliver in faster cycles with a bit forward deployment engineers. So that is included. Some of the AI modernization I talked about, which is starting to gain momentum is all included as part of that. And one last thing is agent DPS, which I missed talking about. I think that's something which is gaining traction, right, agent AI in business process services. And we see that earlier in FY '25, the time taken to implement AI in business process versus this year, we are seeing faster adoption cycles from customers because customers are more confident now putting into production. But obviously, with all the guardrails focus on security, governance and all of that.

Our next question is from the line of Gaurav Rateria from Morgan Stanley.

I have 2 questions for Kriti and one for Samir. My first question for Kriri is your comment that you made on the growth in the clients band of revenue bands in mid and large size, and you talked about stability returning. Is this due to a lower leakage compared to the past? Or is it more led by better macro, which is improving the spend in these accounts. The second question is on AI, if you keep the macro aside for the moment, would you expect the new AI services to be accretive to revenue growth in fiscal '27 net of all the deflation that you see in your renewals existing business? Or is it too early to confirm any such trend? . And the last question for Sameer, is that AI for business look at the revenue productivity and the margins in that portion of the business, how does it compare compared to company average? Is it better? Is it in line? Is it lower?

So Gaurav, first, on the client metric improvement, See, it's a combination of all the factors because you will not be able to grow in that there's no stability or there's no revenue [indiscernible] And essentially, it's a reflection of the fact overall at the high level, the clients are more comfortable in getting into larger transformation programs or some amount of discretionary spend improving. And of course, it's also possible there are some cases, vendor consolidation happening where you gain market share. But definitely indicate there's a stability and the more confidence from the clients as well. And the question -- for your question about AI, again, our expectation is will be net accretive like financial year, our attempt would be to ensure that address the degrowth while you tend to -- while the AI revenue increased increase. But of course, over a period of time, AI revenue or AI-related revenue because it will become very difficult to classify after some time on what is AI, what is AI adjustment revenue, but ensure that they all grow they expect them to grow much faster. At that time, the deflation in the other part may not matter materially, like same cycle whatever happened during the digital transformation cycle that trend will [indiscernible].

Gaurav, on the AI and data part, the revenue productivity is net [indiscernible], then the TCS average of the traditional business for at on-site and offshore. Margin is not called out because there would be investments, which would be temporary or in the initial phase. So it wouldn't be like to [indiscernible]

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to management for closing comments. Over to you. .

Thank you, operator. We are very pleased with the continuous revenue growth, growth momentum we have seen in the last 3 quarters. In Q4, our revenue grew by 1.2% quarter-on-quarter in constant currency with an operating margin of 23.3% at a net margin of 19.4%. We had a very strong PC of $12 billion in Q4 with 3 mega deals. Annually, the services revenue crossed for $2.3 billion. We remain dedicated to our goal of establishing ourselves as the world's premier ad-driven technology services [indiscernible]. Our robust 5-pillar strategy combined with sustained investments across infrastructure to intelligence continues to advance this objective. I extend my appreciation to all TCS employees for their unwavering commitment and professionalism which has been instrumental to the company's continued success. This concludes our call today. Thank you for your participation. Thank you.

Thank you.

Thank you, members of the management. On behalf of TCS, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.